UK: Thames Water price hike rejected

Thames Water wants to put up bills

Thames Water wants to put up bills - Credit: PA

Thames Water’s attempt to slap an extra £29 on customers’ water bills next year has been rejected by the industry regulator.

Ofwat said the water and sewerage company, which serves about 14 million customers in and around London, could only justify a bill hike of around £7 but that this would not be imposed on customers.

Thames Water applied in August for a one-off price increase next year that would raise average bills by 8% from £354, blaming customers struggling to pay their bills and the cost of a super sewer under London.

But in a draft ruling the regulator said it was unconvinced by the company’s calculations on bad debts, slashing Thames Water’s assessment of £75million of extra costs due to “additional deprivation” to just £13 million.

Ofwat’s chief regulation officer Sonia Brown said: “We have looked at the details and do not believe the current evidence justifies an increase in bills.”

It will make its final ruling early next month and invited Thames Water to submit fresh evidence.

Thames Water is subject to a five-year price control period that runs out in 2015 but has said it needs to ask customers for more money to cover costs that could not be quantified at the time this was set in 2009.

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It said the biggest item was £273 million spent acquiring land for the Thames Tideway Tunnel, a major new sewer development.

And it has said £16 of the extra £29 is accounted for by increases in bad debt - when customers fail to pay their bills - due to the economic downturn.

But Ofwat said it was unconvinced that Thames Water’s analysis of the impact of increased deprivation on bad debt costs was “sufficiently robust”.

It added Thames Water “overestimated” an increase in bad debt write-offs, adding “we do not think the company is achieving best practice in debt management”.

Ofwat said in order to justify a price rise, Thames Water would have to give evidence that higher costs warrant bill increases of £9 or more.

But it said the company’s application falls below this threshold, with Thames Water only providing evidence of a £7 increase in bills.

However, this could still mean a bill increase of at least £9 next year if Thames Water submits sufficient fresh evidence to tip it over the threshold.

Ofwat said it was “mindful of the fact that Thames Water’s customers currently face a challenging financial environment with many pressures on household income, and have already experienced increases in their water bills”.

It added: “We wished to be sure that customer bills were not further increased unnecessarily, and that any increase was justified.”

Ofwat said it cross-referenced Thames Water’s cost demands with information from other water firms.

A Thames Water spokesman said: “We will review Ofwat’s draft proposals, and submit our response in due course.”

The regulator said it continues to look at whether Thames Water has “benefited from wider economic circumstances beyond its control” - focusing on whether it has benefited from ultra-low cost of borrowing for big corporations.

This analysis is being done separately to the company’s price hike request.

Thames Water is owned by Kemble Water Holdings, which was formed by Australian investment firm Macquarie Group and bought the utility group in 2006.